ISTANBUL: Turkey's lira hovered around seven-week lows on Wednesday, just above 2.15 against the dollar, as the conflict in neighbouring Iraq continued to weigh and markets looked ahead to a US interest rate decision.
Some of the pressure on the lira was attributed to the dollar firming after a surprisingly high reading for US inflation, which could bring forward the day when the US Federal Reserve might consider hiking rates.
Investors in Turkey, which depends heavily on foreign capital inflows to finance a huge current account deficit, looked to the Fed's interest rate decision (1830 GMT) and a quarterly news conference by Fed chair Janet Yellen.
"A less dovish rhetoric in the FOMC (Federal Open Market Committee) meeting today will likely fuel further unwinding of carry trades, especially on those countries more vulnerable to external financing conditions, like the lira," a note from TEB-BNP Paribas said.
A carry trade refers to selling a currency with a relatively low interest rate and using the funds to buy a different currency yielding a higher interest rate.
The lira stood at 2.1512 against the dollar by 0753 GMT, compared with 2.1517 late on Tuesday.
The yield on the 10-year benchmark government bond yield rose to 9.18 percent compared with 9.13 percent at Tuesday's close.
The main Istanbul share index was up 0.15 percent at 78,148.28, underperforming the broader MSCI index of emerging markets, which fell 0.28 percent.
The Turkish embassy in Baghdad was investigating news reports that a group of Turkish construction workers were among 60 people abducted by militants near the Iraqi city of Kirkuk on Wednesday, a week after 80 other Turkish nationals were seized by insurgents in the northern Iraqi city of Mosul.
Brent crude fell slightly on Wednesday but held above $113 per barrel as heavy fighting in Iraq shut the country's biggest refinery and led to the withdrawal of staff by foreign oil firms.
Turkey imports almost all of its energy, so higher oil prices negatively affect its current account balance, its main economic weakness that makes it especially vulnerable to foreign capital flows.
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